Ukraine crisis: Russia shuts off gas to neighbour over unpaid debts as uprising in east escalates

EU leaders had warned Moscow not to use energy as a political weapon in its row with the new Ukrainian government but Gazprom has cut supplies, citing a $4.5bn debt.

A map shows Russia’s oil refineries and pumping stations during the World Petroleum Congress in Moscow yesterday. The EU gets around 30 per cent of all its energy from Russia (EPA)

Russia’s state energy firm cut gas flows to Ukraine yesterday after months of threats and deteriorating relations between the neighbours, with officials in Moscow warning of potential disruption to supplies elsewhere in Europe.

European Union leaders had urged Russia not to use energy supplies as a political weapon in its dispute with the new Ukrainian government, but soon after the Kremlin’s ally in Kiev was ousted by pro-EU demonstrators in February, state monopoly Gazprom increased prices by about 80 per cent.

Gazprom has since demanded that Ukraine clear nearly half of its $4.5bn (£2.62 million) debt and pay up front for future supplies and, after last-ditch talks ended early Monday morning without a compromise, the company confirmed that flows were cut. “Gazprom supplies to Ukraine only the amount that has been paid for, and the amount that has been paid for is zero,” spokesman Sergei Kupriyanov said.

The dispute over gas prices has run in tandem to an escalating uprising in eastern Ukraine, where pro-Russian separatists have seized government buildings in a rebellion which Ukrainian and Western officials say is backed by Moscow.

On Saturday insurgents shot down a Ukrainian transport plane, killing all 49 people on board in the deadliest incident of the crisis. Ukraine’s President Petro Poroshenko on Monday said he would propose a ceasefire in the region, but only after sealing the border with Russia.

Russia’s leaders deny they are providing support to the separatists, but the Kremlin views events in the former Soviet state as a Western-backed coup and responded by annexing the Black Sea peninsula of Crimea in March. The Ukrainian Prime Minister, Arseniy Yatsenyuk, claimed on Monday that Gazprom’s actions amounted to another attempt to manipulate political events.

“It is not about gas – it is a general Russian plan to destroy Ukraine,” he said. “It is yet another step against the Ukrainian state and against Ukrainian independence.”

The tug-of-war over Ukraine’s future has sent relations between Russia and the EU plummeting, but the bloc’s reliance on Russian energy has hampered efforts to pursue sanctions targeting Moscow’s key earner.

Russia’s President Vladimir Putin has not shied away from exploiting this dependence, sending a letter in April to 18 EU nations reliant on its energy and making veiled threats to the supplies.

More than half of the Russian gas consumed in the EU transits through Ukraine, and a similar dispute in the winter of 2009 prompted energy shortages in at least a dozen nations. Ukraine has enough gas stockpiled to last through the summer, however, and analysts say shortages would only be felt in the EU if no settlement is reached on the price and payment plan before the winter.

The EU’s energy commissioner, Günther Oettinger, said there would be no immediate impact on the bloc’s supply but recommended increasing the stockpiles in case the dispute dragged on. He expressed hope that negotiations between Kiev and Moscow could resume in the coming months, but for the moment there is stalemate, with Russia refusing a compromise payment of $1bn and cash-strapped Ukraine unwilling or unable to come up with another offer.

Gazprom officials said they would honour commitments to the EU, but warned of possible disruption if Ukraine siphoned the gas rather than letting it flow through to its intended destination. “Regarding transit risks, they exist and they are not insignificant,” chief executive. Alexey Miller, told a news conference.

After Russia annexed Crimea, the EU and US imposed asset freezes and travel bans on dozens of Russian and Ukrainian officials, with Washington going after a handful of Russian oligarchs connected to the energy industry and close to Mr Putin. While the Russian opposition politician, Alexei Navalny, urged the West to sanction Mr Miller as well, Gazprom officials have so far escaped any restrictions.

The company has forged close relations with a number of European countries, sponsoring the UEFA Champion’s League and advertising with a German Bundesliga team. It is these strong but differing economic ties between the 28 EU nations and Russian companies which has so far prevented unity on moving towards deeper sanctions against Moscow.

The EU also gets around 30 per cent of all its energy from Russia, with that figure leaping to over 80 per cent in some eastern European nations. Despite pledges after the last gas crisis in 2009 to diversify supply and lessen the EU’s reliance on Russia, little action has been taken.

The sale of oil and gas does however account for 50 per cent of Russia’s federal budget reserves, and most of that goes to Europe. So the EU does have a hefty weapon in its toolbox if it decides later this month that Russia is not doing enough to quell unrest in eastern Ukraine.

G7 leaders meeting in Brussels in early June had given Russia until the end of the month to show that it was taking steps to try to quell the separatist violence in eastern Ukraine, or face further sanctions. Ahead of the downing of the plane on Saturday, there had been tentative signs of a rapprochement between Mr Putin and President Poroshenko, who was elected last month.

Today Mr Poroshenko said he would soon propose a peace plan, including a ceasefire in the east, the industrial heartland of Ukraine and home to many Russian speakers. Addressing his security chiefs, Mr Poroshenko said however that such a truce would be “irresponsible” while weapons and fighters were still transiting from Russia.